Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.98 percent and the one-year risk-free rate in Japan is 5.37 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥116.85/$. What is the one-year forward exchange rate? Multiple Choice ¥117.28/$ ¥119.15/$ ¥120.12/$ ¥116.85/$ ¥116.42/$
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.98 percent and the one-year risk-free rate in Japan is 5.37 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥116.85/$. What is the one-year forward exchange rate? Multiple Choice ¥117.28/$ ¥119.15/$ ¥120.12/$ ¥116.85/$ ¥116.42/$
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.98 percent and the one-year risk-free rate in Japan is 5.37 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥116.85/$. What is the one-year forward exchange rate?
Multiple Choice
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¥117.28/$
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¥119.15/$
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¥120.12/$
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¥116.85/$
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¥116.42/$
Expert Solution
Step 1
Forward rate can be calculated as = Spot rate x (1+Foreign Country Interest Rate) / (1+ Domestic Country Interest rate)
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